Building on our first blog showcasing innovative state strategies to fund early care and education (ECE) infrastructure and improve child care accessibility and affordability, we now look to Georgia, California, Washington, D.C. and Iowa. These state and local governments have implemented successful models that strengthen the ECE ecosystem – fostering vibrant small businesses, healthy communities and a robust workforce – via well-designed tax incentives, flexible funding initiatives and collaborative public-private partnerships. Through effective financing strategies these states are laying the groundwork for replicable state policies and scalable federal solutions.
In Part 3 of this series, LIIF will apply lessons from states in Part 1 and 2 to offer actionable federal policy solutions for addressing the national child care crisis.
Georgia: Tax Incentives
Employer-Provided Child Care (EPCC) Tax Credit
Georgia’s Employer-Provided Child Care Tax Credit is a strong example of how states can incentivize private sector investment in child care infrastructure. By driving private investments into the ECE ecosystem, the State is building child care supply and ensuring working families have access to the care they need.
Employer-provided child care and tax credits are tax incentives designed to encourage businesses to invest in child care for their employees. This tool helps to offset the significant costs associated with providing child care, making it easier for businesses to support their employees’ child care needs by expanding supply. The Georgia Early Education Alliance for Ready Students (GEEARS) – established in 2010 to help business, civic and government leaders maximize the economic return on the state’s investments in early care and learning – is an advocate for EPCC tax credits and other tools that help business owners reduce child care costs for their workforce. LIIF is a proud member of GEEARS’s Georgia Infant-Toddler Coalition and partnered with GEEARS and the Professional Family Child Care Alliance of Georgia (PFCCAG) to improve the affordability, supply and quality of ECE in the state.
Georgia’s current program provides businesses with a 100% total state tax credit, allowing them to claim 10% per year for 10 years on expenses related to employer-provided child care. Qualified expenses include land acquisition, construction, expansion and operational costs of a licensed child care facility that serves employees’ children. The credit is capped at 50% of a business’ annual income tax liability, with any unused portion eligible for carryforward for up to three years. To maintain eligibility, at least 95% of the children served must be dependents of employees from the sponsoring business or partnering businesses in the case of jointly owned facilities.
Recently, Georgia legislators advanced legislation to strengthen child care tax credits. HB 136, introduced by Sen. Brian Strickland (R-McDonough), expands incentives for businesses to cover child care for their employees. The current version of the bill allows employers to make direct payments to child care facilities to cover a portion of employees’ child care costs. The package also includes a new state child tax credit of $250 for children under age 6, along with an increase to the existing state Child and Dependent Care Tax Credit (CDCTC) — raising it from 30% to 50% of the federal CDCTC value. Together, these three components can help reduce the burden of child care costs for families and ensure more parents get back to work.
Key Lessons
Expanding access to quality child care requires innovative approaches that engage multiple stakeholders, including businesses. When parents lack child care it reduces labor force participation, making it more challenging for businesses to hire the workers they need. Employer-provided child care enhances employee productivity, boosts retention and fosters a supportive work environment, all of which contribute to a strong economy. EPCC tax credits are an effective tool for helping businesses offer child care benefits while also providing substantial tax savings.
Still, navigating the tax regulations related to employer-provided child care tax credits can be complex, as there are limitations at the employer level as well as implications for the employee receiving the benefit. Additionally, only 26 states have an employer child care tax credit or employer tax incentive for child care, leaving half of the country without this valuable benefit. To overcome these barriers, additional reforms are needed to enhance the tax credit’s effectiveness and accessibility, including at the federal level.
California and Washington, D.C.: Infrastructure Grants
Infrastructure Grant Program and Access to Quality Care Grant Program
Both California’s and Washington, D.C.’s child care infrastructure grant programs help build and improve ECE facilities and programs. By leveraging flexible capital to support child care infrastructure, both are increasing the supply and enhancing the quality of child care.
The Child Care and Development Block Grant (CCDBG) is the largest source of federal funds to improve the quality of child care for low-income families. It plays an essential role in ensuring low-income working families have access to affordable, quality child care; recent adjustments to allowable infrastructure expenses are an important step toward investments in child care facilities.; however, given administrative complexities, states still need to fill funding gaps. As the leading national community development financial institution (CDFI) in the ECE space, LIIF champions bipartisan efforts to strengthen CCDBG and policies that build sustainable community-based systems to support ECE facility financing and development.
California’s Infrastructure Grant Program (IGP) has been instrumental in enhancing the quality and accessibility of early care and education (ECE) facilities across the state. Established in July 2021, the program allocated $350.5 million to address health and safety concerns in child care centers. The state partnered with LIIF, as a trusted CDFI with decades of experience in quickly deploying capital, to serve as facility funds manager. As a result, the program has provided grants to over 4,000 child care providers and funded major construction and minor repair/renovation projects to expand and enhance both home- and center-based child care facilities, creating nearly 2,400 infant toddler spaces. These initiatives have significantly improved the quality of ECE in California, ensuring that children have access to safe and nurturing learning environments.
Additionally, Washington, D.C.’s infrastructure grants for child care aimed to address the city’s growing need for accessible, high-quality ECE spaces. Initiatives, such as the Access to Quality Child Care Grant program, improved the supply and quality of child care services in the District by providing grants to child development facilities in an effort to expand, open and improve new and existing child-development facilities. LIIF partnered with the District to administer both tranches of the $20 million grant program. LIIF has also partnered with the District on data-rich reports examining the ecosystem of child care infrastructure, offering insights on possible solutions for supporting these small businesses that are the backbone of the economy.
Key Lessons
Often, both in-home and center-based child care operate on tight margins, so they benefit greatly from grants: Child care infrastructure grants build capacity and ensure safe early learning facilities. This approach is especially impactful for underbanked communities and undercapitalized ECE providers, where access to quality ECE services and capital is most limited. The success of both California’s IGP and Washington, D.C.’s Access to Quality Child Care initiative underscores the benefits of utilizing flexible capital to increase child care affordability, supply and quality.
Despite innovative efforts to finance child care facilities, demand far exceeds supply for high-quality ECE slots, particularly for low-income families. Additionally, as previously noted, grant programs such as CCDBG can be restrictive and there is currently no dedicated federal funding mechanism for ECE facilities; therefore, governments should consider establishing dedicated public sector resources (forgivable grants, revolving loans, etc.) for ECE facilities, particularly through partnership with organizations that have financing expertise and a deep understanding of community needs. CDFIs offer such experience efficiently and effectively administering capital and can leverage additional funding to amplify the impact of any public dollars invested in child care facilities.
Iowa: Public-Private Partnerships
Child Care Solutions Fund (CSF)
Iowa combines public and private funds to increase child care capacity without raising prices for families. By leveraging public-private partnerships, the State is driving investments that support the ECE workforce, increasing the availability of child care.
The Child Care Solutions Fund (CSF) pilot program, launched in 2023 through a partnership between the State and the Iowa Women’s Foundation (IWF), was designed to tackle Iowa’s pressing shortage of affordable child care and workforce barriers. The initiative matches private dollars with state funds to expand child care options, with the Iowa Department of Health and Human Services (HHS) matching $2 for every $1 raised from local business, nonprofits and individuals. The funds, totaling $5.3 million, supported 10 Iowa communities, which primarily used the funding to boost wages and benefits for child care workers. This approach helped the pilot communities to address the ECE workforce shortage challenges that often hamper child care centers’ capacity.
In its first year, the program successfully added an average of 22 new child care slots per 1,000 children and led to the retention or hiring of about 1,200 ECE workers in participating communities. Research from Common Sense Institute found that expanding the program statewide could create nearly 11,000 new child care slots, allowing 5,000 people to enter the workforce and generating an estimated $13 billion in economic growth over the next decade. By addressing the child care gap, the CSF pilot demonstrated its potential to significantly boost economic participation and contribute to Iowa’s overall economic growth.
Key Lessons
Iowa’s CSF program addresses child care shortages by expanding the ECE workforce and slots. Specifically, Iowa strengthened collaboration among communities and improved the financial stability of child care providers through a strategic public-private funding model. Technical assistance and support from IWF bolstered these efforts, ensuring they are effective, sustainable and aligned with quality child care needs.
Although CSF was effective in leveraging wage enhancement to recruit and retain more qualified staff, they still had limited capacity due to space. To that end, public-private partnership models, such as CSF, should consider utilizing dollars to help fill other needs like expanding facilities. As a CDFI, LIIF mobilizes financial and technical resources essential to thriving ECE ecosystems and is a longstanding champion for comprehensive investments in both the human and physical care infrastructure.
Conclusion
Georgia, California, Washington, D.C., and Iowa have taken significant steps to drive investments in child care, expanding access and easing costs for families, thereby demonstrating a clear understanding that child care is essential to economic mobility and the health of communities; however, states alone cannot resolve the full extent of challenges in our child care system. Federal policy must work in tandem with state-level solutions, ensuring sustainable funding for child care supply and supports across the nation.
In our next and final blog for this three-part series, LIIF will examine how the federal government can play a transformative role in advancing policies that leverage public and private investments to meet community child care needs.